Is the Dell/EMC Merger Good or Bad for Storage? Try Both
As everyone who does not live under a rock knows by now, Dell and EMC have signed a definitive agreement for Dell to acquire EMC. The deal is multi-billions of dollars ($67 billion to be exact). Privately owned Dell is rich but not that rich, so Michael Dell partnered with MSD Partners and Silver Lake to get the necessary cash.
This article will concentrate on the storage aspect and how this particular merger looks to affect the enterprise storage market and most critically, mid-market storage. All told there will be a lot of customer angst and subsequent hair pulling over suddenly unsupported storage products. The expense of migrating data onto new storage lines will also be a customer irritation, especially if they feel compelled to migrate years earlier than they expected to.
The Synergies: It’s not all Bad
1. Enterprise platform. Dell’s stated reason for buying EMC, and likely its primary motivation, is EMC’s primacy in enterprise storage. But Dell is not just buying a big customer base; it’s also smoothing the way towards a comprehensive enterprise platform for the corporation, where the data infrastructure is built on the Dell-centric data center with immediate access to Dell-controlled private and hybrid clouds.
2. Dell-controlled clouds. Speaking of clouds, they are a critical component of Dell’s enterprise platform plan. In this vision, the corporate data center becomes the foundation of the enterprise computing stack, while the cloud becomes an extension of the data center. The cloud becomes a failover site, a mega-scalable compute and storage resource, data management off-load, and a rich component of the full enterprise stack. The last thing that Dell wants is to lose all of this rich business to the hyper-scaled public clouds; Dell needs to provide and/or control private and hybrid cloud offerings to the enterprise.
3. DSSD flash technology. It is no secret that one of the reasons Dell acquired EMC is for its stealth DSSD technology. Both Dell and EMC offer all-flash arrays (AFA): Dell with Dell Storage SC4020 AFA configurations and EMC XtremIO. But EMC has an attractive ace in the hole: DSSD. EMC snapped up super secret startup DSSD in 2014. Observers report that it radically accelerates performance using NAND chips, which former DSSD vice president Bill Moore termed “face-melting performance.” EMC is using DSSD technology to build an innovative new all flash array. No products have shipped as yet, but Michael Dell found it sufficiently exciting to remark on DSSD during an interview on the acquisition.
4. HPC. There are also good matches between the high performance computing lines. For example, Dell recorded the number-one revenue shares for high performance servers, while EMC recorded number-one revenue shares for high performance storage. The melding of product lines in HPC environments will be of immediate benefit.
5. Hyperconvergence. Although Dell and EMC storage products will compete, Dell’s server business will benefit. This is a time when other companies are spinning off or closing server businesses: HP is splitting into two and IBM spun out Lenovo. Instead, Dell bought the world's largest storage company to fill out its enterprise storage offerings and – I suspect – to launch a hyperconverged line. Dell would now own the storage and server components, and would be the major investor in the hypervisor. That puts Dell in an excellent position to grab strong market share in the very hot hyperconvergence segment.
The Not-So Synergistic: Storage
All of these supposed synergies are very well, and at least some of them will be successful in the enterprise market. However we cannot say the same about storage whose primary market is mid-sized business.
Let’s look at some storage history. Dell and EMC are hardly strangers: at one time, Dell’s partnership with EMC represented 50% of Dell’s storage revenues, most of it thanks to CLARiiON. But Dell had different ideas going forward and dissolved the storage partnership in favor of investing billions in storage R&D. Dell achieved a good deal of success in selling storage to the mid-range, thanks to offering sophisticated functionality at a mid-market price. What it lacked was a solid foothold in the rarer atmosphere of the enterprise.
The Dell storage products in question include Dell Storage SC/Compellent SAN and NAS, Dell Storage PS/EqualLogic for high performance storage, the DR4000 and DR4100 backup appliances, and the OEM’d PowerVault MD. (Dell originally OEM’d the line from LSI Engenio, and now from NetApp as NetApp acquired the Engenio division.) EMC’s mid-market storage includes Isilon scale-out NAS, VNX for file and block, and Data Domain dedupe. VMAX (Symmetrix) is in the mix of course, but with its strong enterprise base I expect Dell to grow the EMC flagship product.
Related data protection products are also in the competitive arena. The most obvious collision trajectories are EMC Networker vs. NetVault, and Dell AppAssure vs. sworn enemy Avamar. Other data protection products might not compete head-to-head but the merged company will still need to decide where to spend R&D and marketing money. These decisions will affect products like vRanger, VPlex, RecoverPoint, and more.
None of this is going to happen immediately but storage purchasers think in the long term. If they have just bought a storage system with a 5-year lifespan – or are about to – have they made an expensive mistake? Five years is a long time for Dell to keep up a development roadmap and support staff, especially if they plan to lay off the engineers and marketers who are expert on the product line.
Neither company did this for their storage customers, gushing press releases notwithstanding. Now, no company is going to deliberately alienate large portions of their customer base into the foreseeable future. That is foolish, and neither company is foolish. Dell believes that any short-term loss in profits and customers will be more than made up for by future growth. Maybe they’re right. But the number of smaller and more nimble competitors are already out there and they will only benefit from the merger. Dell will be scrambling to keep its enterprise customers – or more to the point, EMC’s.
More than Storage
The deal is bigger than storage of course. Between them, the two companies have their fingers in cloud, networking, content, end point, server, security, and virtualization pies. And VMware is not the only other company in the mix: RSA Security is another. Dell will have to plan for it all. Another issue is how widespread the merger’s impact really is. The merger will deeply impact Dell and EMC and also the customers, and will likely benefit competing storage vendors. Channel partners will also be deeply affected.
Why did EMC sell? The only people who know for sure are Michael Dell and Joe Tucci, EMC’s board, the top investors, and maybe some very, very senior executives. It is true that EMC’s September 2015 quarter earnings were weaker than the analysts expected them to be, and true that EMC has been slow to jump on nimble storage offerings and the flexible cloud. Dell has its own cloud gaps, yet they chose massive growth over diminishment.
The fact is that we do not know what decisions Dell will make; Dell may not even know yet. What we do know is that Dell must carefully handle customer expectations and frankly, resentments. Dell is private and need not hit analyst expectations as EMC had to, but they are also in tremendous debt over the acquisition. They cannot afford a wide-scale mutiny on the part of many thousands of data center managers who will now turn to innovative competitors for their storage. Dell needs to cast the vision for these customers: that converged data centers, virtualization and the cloud can turn short-term storage pain into long-term gain.